Hawaii Medical Service Association lost $2.3 million in the second quarter, reversing a $9.4 million profit in the year-earlier period.
The state’s largest health insurer spent more on medical benefits and administrative expenses for its nearly 720,000 members than it collected in premium revenue in the quarter that ended June 30. The health plan filed its quarterly financial statements Thursday with the state Insurance Division.
"Health care is expensive. That’s one of the main reasons why it’s so important for people to have health insurance," Steve Van Ribbink, HMSA’s chief financial and services officer, said in a statement. "Our 75 years of experience has taught us to anticipate periods like this. We put money aside into our reserve to make sure our members are covered even when they pay less than what it costs for their health care."
The health plan collected $674.2 million in premiums and paid $634.2 million for medical benefits and $61 million for administrative expenses, up 16.5 percent from the year-ago quarter. That resulted in an operating loss of $21 million. Investment income of $15.4 million, more than triple second-quarter gains a year earlier, helped reduce the loss to $2.3 million.
By comparison, HMSA generated $610.7 million in dues revenue and spent $554.1 million on medical expenses and $52.4 million on administrative costs in the second quarter of 2012. The company attributes some of the administrative increases to costs related to the Patient Protection and Affordable Care Act. Major provisions of the federal law, also known as Obamacare, take effect in 2014.
"They’re paying out more dollars, but at the same time they got a higher investment gain and they have a higher charge for administrative expenses. It appears that either they have high cost claims or they cannot control provider expenses," said Paul Tom, president of Benefit Plan Solutions Inc., a Honolulu-based employee health benefits consulting firm.
HMSA began tying provider payments to patient outcomes several years ago to control medical costs and ultimately save consumers money.
"It doesn’t appear that model is working," Tom added. "The concern that employers and policyholders have is HMSA has been touting for over a year that this model is going to save consumers money. But based on the performance quarter to quarter, it doesn’t appear that is what’s happening."
Federal law requires insurers spend at least 80 percent of member premiums on medical benefits. HMSA said it spent more than 90 percent of premium dollars on health costs last year.
HMSA had 719,977 members at the end of the second quarter, up by roughly 20,200 from the year-earlier period. The insurer’s reserves — designed to protect members in case of an emergency and to fund special initiatives — totaled $442 million, or about $614 per member.
"Our reserve is not nearly as high as we’d like it to be," Van Ribbink said. "We aim to keep at least three months of premiums to cover members in periods like this. Right now we have a little more than two months."
Based on the current trend, Van Ribbink expects an annual loss in 2013.
The company requested earlier this year an 8.6 percent premium increase for 118,000 Hawaii consumers renewing health policies in July, but instead received approval for a 6.8 percent rate hike from the state Insurance Division, which regulates insurance rates.
HMSA executives have warned of "rate shock" next year as the health reform law rolls out, requiring the uninsured get insurance coverage and changing the way health care is paid for and delivered.
